How to Chill Out as the Market Melts Down

The other day while I was in line at Chipotle, which is where I spend most days between 12:45 and 1 PM, and where I sometimes have the opportunity to gauge the collective worries of America, some woman flipped out about the stock market. "Is it still going down?" she asked me, after I mentioned to a friend that it was still going down. "God, we’re all fucked!" she said.

America: Chill out. Have a cocktail.1 And stop thinking about your 401k. Why? It’s fake money. Just because it has a dollar sign attached to it doesn’t mean that’s what it’s worth.

Let’s be clear: There are people who are in total anguish over the events of the last few days. These people are I-bankers, hedge-funders and gamblers. People whose livelihoods depend on getting better-than-average returns on a daily basis. This is not you, America, and it’s not me, either. We are sensible people. All we want is to retire to a nice gated community with a communal tennis court someday. And times like this, when the New York Times is telling you that it’s all downhill from here, it’s important to remember: No, it’s not.

I want to introduce you to something that I call the "Oh, cool" dogma. But first, let’s get this out of the way: I’m not an economist, and I’ve never worked professionally as a stock broker. But I do have a picture of Paul Krugman in my bathroom, and I read a really good book about investing once (more on that later). I have a pretty solid, generally successful portfolio of my own. So here’s how I think of news about the stock market: "Oh, cool."

About that book. A year ago, I bought The Intelligent Investor, or rather, an updated version of the 1949 classic by Benjamin Graham. The newer version is edited by Jason Zweig, a financial columnist for the Wall Street Journal. (Full disclosure: Jason is married to the sister of my second-cousin-once-removed’s husband, and tentative though that may seem, we have had family dinners together.) Anyway, Graham’s theory was built around value investing, which is how Warren Buffet— a student of Graham’s—made billions. Value investing, if you’re really good at it, and have a lot of time to comb through financial statements, means identifying companies that are undervalued, and buying them at that price. My version of value investing—that is, the short-on-time and short-on-cash version—means ignoring frantic revaluations of stocks and indes. And keeping in mind that just because a bunch of people decided to sell their shares of something—and just because the SP decided the U.S. isn’t as hot as it used to be—doesn’t mean you have to live with that version of things. That price will change tomorrow. And eventually, it will go up again.

Graham’s favorite analogy was Mr. Market. Mr. Market is a greasy dude who comes to your door everyday and offers to buy your house. One day, he’s like, Hey I’ll give you 100k for this place! A few days later, he decides he wants to give you 50k. Did your house somehow become shittier by half? No, it’s the same damned house. And if it’s a good house, and you give it enough time, someday he’s going to offer you more for it. That price he offered you today is considered an "unrealized loss." If you accept the price—that is, you decide to trust his judgment— the loss becomes realized. As in, you actually lose money. And the same goes for your stock portfolio. Right now, you haven’t lost any money. Right now, you’re just a guy sitting in his office with two twenties in his wallet, a couple thou in his checking account, and some crazy, fluctuating line graph on Schwab letterhead that bounces up and down everyday.

And over time, the one consistent thing about the stock market is that it has always ended up going higher. From 1910&#x2013;2010, even including the Great Depression and the dotcom bubble and the housing bubble (and adjusted for inflation), the market rose an average 8.21 percent a year. This is 100% true. And those are my expectations: I just want to make 8.21 percent. That’s better than the 2.35 percent I’ll get on a five year CD, and it’s better than the 1.5 percent I could get with a high-yield savings account. Of course, I hope I’ll make more. Sometimes I fantasize about pulling off 10 percent, when all is said and done. But I fantasize about that like I do winning the lottery, or having the opportunity to say something really witty to Emmy Rossum. That is, probably won’t happen.

Graham writes that the typical investor "would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other person’s mistakes of judgment." Zweig expands on this: "If, after checking the value of your stock portfolio at 1:24 pm, you feel compelled to check it all over again at 1:37 PM, ask yourself these questions:

&#xB7; Did I call a real estate agent to check the market price of my house at 1:24 PM? Did I call back at 1:37 PM?

&#xB7; If I had, would the price have changed? If it did, would I have rushed to sell my house?

&#xB7; By not checking, or even knowing, the market price of my house from minute to minute, do I prevent its value from rising over time?"

This is the crux of the "Oh, cool," dogma. Tell me the market is crashing. I really don’t care—all it means is that right now, a bunch of people got freaked out and threw away money. It means some lady in line at Chipotle opened up her eTrade App and unloaded a few hundred shares of GM right then and there. That means she lost. And when I get back to the office and buy GM at $24—value investing at its easiest—well, that means I win.

1.All that said, here’s a drink I like to make. A couple of restaurants do a variation of it and call it what they want, but its real name, far as I can tell, is the Maple Leaf. It’s best with a handful of crushed ice. 2 oz bourbon, 1/2 oz lemon juice, 1/2 oz maple syrup. Shake well with ice, and strain into glass with crushed ice. And stop worrying about some stupid, made up, arbitrary number.

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